Close Corporations

A Close Corporation is an entity that is registered in terms of the Close Corporation Act 69 of 1984. A Close Corporation Act provides for the formation of close corporations, which are simple, flexible and limited liability entities, suitable for small businesses. It is a separate legal entity, operating independently of its members.

Important aspect:

  • No new close corporations will be registered, but new companies can be registered.
  • No company conversions to close corporations will be registered
  • Provision has been made for close corporations to convert to companies without any payment in terms of the New Companies Act.

Features of a Close Corporation

The following are the main features of a close corporation:

  • Members are restricted to be between 1 and 10 natural persons
  • There are no share capital
  • Registration is uncomplicated
  • A close corporation does not consists of directors
  • The members of the business have the freedom to conduct their practise in the manner in which they choose to
  • Any one can form a CC and the purpose of the CC does not have to have a profit motive

Advantages

  • No statutory audit is required
  • A close corporation is a separate legal entity like that of a company, which means that its members enjoy limited liability
  • A close corporation may provide financial assistance in this way assisting another person to purchase another member’s interests in it
  • Members of the close corporation are responsible for the management of the CC because of the absence of a directorate, so there is a simple management structure.
  • A close corporation facilitates decision making

Disadvantages

  • Members of a close corporation is restricted to a maximum of 10 natural persons
  • Each member of the CC is a representative of the CC, which results in members conducting business on behalf of the CC which may create risks for the other members
  • There is uncertainty in fulfilling certain duties within the CC
  • In the case of insolvency, the members could be liable to repay distributors